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Credit cards are ever changing and now from just functioning as plastic money credit cards are offering several incentives. The very first incentive or reward was offered in 1980 by Discover who offered "cash back" on every purchase. Now most cards have different reward schemes in place and generally offer a penny for every dollar spent. The penny as reward on credit card use can be in the form of cash, goods, or services. It is basically a marketing ploy with rewards encouraging credit card owners to spend more and to remain loyal to the company.

With intense competition to get and retain customers, credit card companies are offering a great bouquet of rewards. Today over 58% of credit card companies are offering customer rewards that are in excess of a penny to a dollar.

A reward card is a credit card that offers all the conveniences of a credit card along with great frills like gas at a discount, cash back, discounts on select merchandise, flying miles and more. In fact, today many cards allow customers to opt for reward points or cash back and a customer can change easily from one option to the next.

Whenever you use a card you will earn points based on the value of your purchases. Accumulated points can then be adjusted against card fees, merchandise, or as cash back. Points can be redeemed for airline rewards, cash rebates, movie or concert tickets, or things like tours, electronic goods, or household goods.

An extremely popular marketing scheme people prefer to get cards that offer incentives over cards that offer no frills at all. However, cards that have reward schemes generally have a higher APR or annual percentage rate.

o Always weigh the pros and cons carefully before you select a rewards credit card. Find out whether it will in actuality be beneficial to you.

o Choose the scheme with care. Incase you do not travel very often it is pointless for you to get a card that offers frequent flier miles. Perhaps a card that offers great merchandise will be more useful. According to CNN Money if you spend under USD 10,000 a year on travel then you should set aside all plans to get a card with flyer miles and choose one that gives cash back or other treats like discounts on gasoline.

Experts in finance and credit cards suggest that one should:

1. Opt for a card with many reward choices. This way you will have a greater choice and flexibility.

2. Always spend the points accrued quickly. Never wait to gather a huge number of points. Companies change schemes as well as rewards periodically and you may loose the value of the points.

3. Never sign up for reward credit cards unless you are sure you can pay the bills in full every time you use a card.

4. Avoid the temptation of applying for more than one card. Never increase your financial burden. More is not better.

Used wisely reward cards are useful. But one needs to use any credit card carefully or it can lead to bankruptcy.

Tips on Understanding How Different Reward Credit Cards Work

Tips on Understanding How Different Reward Credit Cards Work